LEANNE WELLS. Health insurance: the big shift that’s left patients short

The transformation of big health funds into for-profit business enterprises sheltered by significant government subsidy and regulations has failed to prompt a complementary  response from federal governments, Coalition or Labor, to even the playing field for consumers.

 This century the purpose of health funds has in notable cases shifted from being principally about protecting fund members’ benefits to promoting shareholder benefits.

When the federal government in 1999 expanded subsidies and other incentives to boost the private health insurance market, the changes were promoted as being in the interests of the community for both fund members and public hospital patients.

Now health funds are generating substantial profits — an average 18 per cent rise in the past year — while imposing above inflation premiums and squeezing benefits to their members.

As it often does, the free market falters when it comes to meeting public needs and expectations in health care.  That phenomenon is graphically illustrated by the hugely expensive arrangements in the United States which has among the poorest population health outcomes of any western nation.

The Australian Government has initiated a reform process by means of a review involving representatives of all of the main interested parties.  Given the competing interests of the organisations represented, it is uncertain whether the review will reach an agreed solution.

While the funds blame high and rising fees charged by hospitals and surgeons, the latter blame the funds for failing to provide the right cover.  Left in the middle is the consumer, hit by relentlessly increasing premiums and eroding levels of cover.

There is little evidence that the substantial subsidies to health insurance provided since the turn of the century have produced any lasting benefits for the increasing numbers of people coaxed into taking insurance.   While the initial 30 per cent rebate fueled a “rush for cover”, the savings to consumers of the rebate have long ago been swallowed by rising premiums.  The most notable development in this period has been the inexorable above-inflation increases in premiums, year after year.

The Government appears not to be swayed by the transformation of big health funds from community benefit organisations into for-profit shareholder companies and the impact this is having on policy holders.  The Health Minister, Greg Hunt, has indicated that he wants to see more people sign up for private cover.  That will only happen when health insurance delivers better for consumers. In the meantime, we can expect consumers to vote with their feet as average families weigh up the competing demands on their already stretched household budgets.

While the smaller, not-for-profit health funds enjoy higher rates of customer satisfaction, health insurance for many Australians today presents a bleak picture compared to the early days of health insurance when community mutual funds were established on a self-help basis to meet the expenses of medical care.  That was achieved without the mediation of the share market.

The transformation of big health funds into for-profit business enterprises sheltered by significant government subsidy and regulations has failed to prompt a complementary  response from federal governments, Coalition or Labor, to even the playing field for consumers.

The current review, installed by the previous minister, Sussan Ley, has terms of reference aimed at improving health fund policies, including more simplified consumer “products”, standardised offerings and better consumer information to ensure transparency and the like. These are all areas of significant need for reform.

However the most potent levers available for the Government to stimulate change — the health insurance rebate and associated tax arrangements — are excluded from consideration by the review.   Depending on how you count it the overall cost of these provisions has been estimated to cost the taxpayer between $6 billion and $11 billion a year.

The Consumers Health Forum has for the past 18 months urged the Government to deploy the rebate as a means of spurring change in health insurance to drive improvements in policy direction by requiring funds to shape up or lose the right to the rebate on their policies.

CHF has told a Senate inquiry into health insurance and out of pocket costs that government outlays to health insurance continue to increase despite the lack of any conclusive evidence that this investment is providing sufficient returns.

CHF is calling for a Productivity Commission inquiry into the benefit of government involvement in health insurance. It also seeks a robust public benefit test to ensure the community is gaining from this investment.

These are reasonable calls when, remarkably,  government funding of health insurance — one of the most heavily subsidised sectors in Australia — has not been subject to any penetrating scrutiny since the1999 funding infusion.

Evidence-based health care goes without saying.  What is needed now is evidence-based health insurance.ends

Leanne Wells is CEO of the Consumers Health Forum of Australia.













John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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1 Response to LEANNE WELLS. Health insurance: the big shift that’s left patients short

  1. Avatar Peter Sainsbury says:

    Leanne Wells clearly exposes some of the current problems and contradictions in the Australian private health insurance industry, particularly the ridiculous situation (bad health policy and bad economic policy) of the public purse giving 6-11 billion dollars per year to an unpopular industry that generates 18% profits for its senior managers and shareholders to pocket.
    I would however like to correct one persisting myth that Ms Wells repeats. The introduction of the 30% private health insurance rebate had no appeal to potential customers whatsoever, as evidenced by the failure of the rebate to have any effect on the uptake of private health insurance. It was the introduction of lifetime cover a year later, not the rebate, that scared Australians and prompted the ‘rush for cover’.
    If for some reason (although it’s pretty difficult to find any logical or evidence-based reason … but nevertheless if) the federal government wishes to provide a boost to private health care it would get better value for money and better patient outcomes by spending fewer billions on quantity and quality contracts negotiated directly with the private providers themselves. Thereby cutting out the parasitic middle’men’.
    The repeated bleating of the private health insurers is a graphic demonstration of the hypocrisy of advocates of a free-market – ie a market unhindered by government regulation. ‘Don’t give us regulation, just give us public money that we can distribute to private individuals in inflated salaries and dividends’ is in effect their mantra.

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